Special session ends with 25% oil tax -
VICTORY FOR PALIN: State's take is expected to increase more than $1 billion from previous deal.
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By SEAN COCKERHAM
Published: November 17, 2007
Last Modified: November 17, 2007 at 02:43 AM
JUNEAU -- The state Legislature approved a tax increase of more than a billion dollars on oil companies Friday as the 30-day special session ended.
It was a major victory for Gov. Sarah Palin, who wanted the tax increase and called the Legislature into special session to make it happen. She heaped praise on legislators for hard work, saying the bill strikes a good balance.
"I'm very happy with this work product," Palin said. The governor called for changes in the oil tax lawmakers passed only last year, saying it is tainted by an ongoing bribery scandal and isn't bringing in as much money as expected.
The new tax could bring the state over $1.5 billion more a year in these times of oil high prices.
But even one prominent supporter of the bill worried about the fallout. House Speaker John Harris said Friday he is hopeful the governor did not make a "serious mistake" by pushing through a bill that will end up hurting the state's economy.
It was a significant change in tone for Harris, who has been supportive of raising the oil tax throughout the special session. The House speaker explained the shift by saying that he didn't like parts of the bill added in the state Senate, particularly making the tax increase retroactive to June 30.
The House had no choice but to take or leave the Senate version. The Senate adjourned after passing it Friday afternoon, the final day of the special session. There was no time for a conference committee to negotiate.
Harris said he still thinks it's a good bill, overall. He voted for the original House version and to accept the Senate changes. But the Valdez Republican said he does not want to leave the impression there is no risk involved.
"The industry isn't going to sit still for it. I think they will do whatever they have to do," Harris said. "That will have an effect on the economy and it won't have a positive effect."
The major oil companies that operate on the North Slope testified that the tax increase would affect their investment decisions. BP Alaska president Doug Suttles issued a statement after the special session, saying development of new oil production is what's needed and the bill is not going to help that.
"I can only hope that once the impact of this legislation is clear, the administration and the Legislature will revisit the issue," Suttles said.
State oil taxes get recycled back into the economy though state services, construction projects and other spending.
RESTORING TRUST
Palin said the new oil tax should last for a long time. She said the tax-hurts-jobs sentiment the oil companies expressed in their public relations campaign was predictable.
Palin said other oil regions are also raising taxes in these times of extraordinarily high oil prices and company profits. There's been little evidence that it's harmed investment, she said. The oil is too valuable, she said.
"We are very confident that (this bill) does not thwart progress in investment with the oil industry," the Republican governor said.
Palin also said the new oil tax should help restore public trust in the state's leaders.
"The healing that has been needed, I believe, in state government can start with this trust being built," she said.
A major reason the governor called for the oil tax rewrite is her assertion that the existing tax lacks the confidence of the public.
Former executives of Veco Corp. have admitted bribing some lawmakers during last year's debate over the current tax, known as the Petroleum Profits Tax, in an effort to keep the tax rate down.
DEMOCRATS STEP FORWARD
Palin's high public-approval ratings clearly helped get the tax through the Legislature. Many lawmakers are reluctant to pick a fight with such a popular governor.
The oil tax bill was in trouble earlier this week with time running out and opposition from Republican leaders in the Senate majority. Palin said then that she would call the Legislature into another special session if an acceptable oil tax bill didn't pass.
Palin said Friday it was not a threat, but a "reminder."
House speaker Harris said he believes it did help the tax bill regain momentum.
But maybe more significant was the emergence of Senate Democrats as an important force in the Legislature. For years the Democrats languished without power in the minority, but they are now part of a bipartisan majority coalition.
The Democrats flexed those muscles effectively during the oil tax debate.
The tax bill picked up speed in midweek as they aligned with Senate minority Republicans who wanted higher oil taxes.
Republicans in the majority, led by Senate President Lyda Green, found themselves without support to stop the tax they didn't want. Anchorage Democratic Sen. Hollis French said division over the oil tax "put a strain" on the power-sharing majority coalition, but it was never in danger of breaking apart.
"What we're in the process of doing right now is trying to learn how to continue to work together within the coalition," French said.
The tax bill ended up passing the Senate on a 14-5 vote. The state House accepted the final version Friday by a 26-13 margin.
LIMITING DEDUCTIONS
Democrats were also instrumental in getting the tax through the House. It was never a given they would support it, because many of them really wanted an oil tax system based on gross production.
The bill that passed Friday keeps the state tax based on oil company net profits. Supporters say that system is better suited to encouraging oil industry investment. But gross advocates said basing it on profits means the state has to wrestle with sharp oil company accountants and their claims of deductions.
The compromise came when the Democrats won a provision that will limit how much the companies can deduct for operating expenses at the Prudhoe and Kuparuk oil fields -- the two largest North Slope fields. The deduction cap is to go away after three years, although lawmakers can always extend it.
"It's about as good a bill as we are going to get out of this building," said Anchorage Democratic Rep. Les Gara.
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How the state's main oil tax changes:
• Base rate of 25 percent of profits, up from 22.5 percent.
• Tax rate rises 0.4 percentage points for each dollar the net oil price is above $30 -- equivalent to a market price of about $50. Old tax rate rose 0.25 percentage points for each dollar above $40.
• Limits the deductions oil companies can take for operating the Prudhoe Bay and Kuparuk fields.
• Bars deductions for costs arising from breaking the law, aimed at corrosion repairs BP is making after Prudhoe Bay oil spills last year.
• Eliminates most companies' abilities to claim tax deductions for past investments. How the tax works |
